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How AI tools can protect your organization against Money Laundering

Pelican_AML_Blog_May2020_v4
By Nasser Sweileh

Embracing technologies such as Artificial Intelligence (AI) can deliver rapid and measurable efficiency and capability gains across the entire financial crime compliance spectrum. AI solutions should be able to work with existing core AML/CTF and KYC screening tools, enabling current platforms to be adapted to meet the needs of today’s challenging and real-time screening requirements.

 

Financial institutions continue to struggle with anti-money laundering and counter terrorist financing (AML/CTF) compliance obligations, despite the increasing attention by regulators over the past decade. A succession of financial fines, and the consequent reputational damage, continues to hit the news headlines and shows no signs of abating.

According to a recent report1, Financial institutions have been subject to over $36 billion in fines since the 2008 financial crisis for non-compliance with AML, KYC and Sanctions regulations. In fact, penalties for AML and KYC violations have increased by 160% in the last 15 months. 12 of the world’s top 50 banks were subject to fines last year, with one Swiss bank being fined $5.1bn for AML breaches in 2019.

So why do these sophisticated global organisations repeatedly fall foul of regulators?

It is certainly true that the costs of financial crime compliance have increased in recent years; banks have invested heavily in sizeable compliance processes, systems and teams in an attempt to keep abreast of ever changing compliance obligations. Despite this investment, the news repeatedly highlights yet another organisation that has received significant penalties from regulators for a failure in maintaining sufficient AML/CTF and KYC processes. This raises questions that go to the heart of compliance strategy, and a narrow reactive-focus prevalent in many organisations.

 

Cumbersome Tools

Today’s dynamic geo-political environment has been one factor in creating a more fluid and complex global AML and sanctions environment, with more nuanced restrictions being applied to individuals, specific companies, and certain product or service categories. With sanctions being deployed more frequently as a political policy-tool, compliance obligations have become far more granular and fluid.

The often cumbersome and responsive AML and sanctions screening tools of the past have been found to be ill-suited to meet the higher velocity and more complex screening obligations of today. The increase in head-count in compliance departments to deal with a growing number of false-positives has failed not only to tackle the significant false positive review workloads, but also fundamentally failed to tackle the problem at source. Despite the notable advances in technology over recent years, many bank IT processes remain fragmented, siloed, and frustratingly difficult to reconfigure and modify.

 

AI Solutions

Embracing technologies such as Artificial Intelligence (AI) can deliver rapid and measurable efficiency and capability gains across the entire financial crime compliance spectrum. AI solutions should be able to work with existing core AML/CTF and KYC screening tools, enabling current platforms to be adapted to meet the needs of today’s challenging and real-time screening requirements.

While AI embodies a range of various solutions, the combination of Natural Language Processing (NLP) and Machine Learning (ML) has proven to be of high level of effectiveness. NLP brings about a human-like contextual approach that understands the context in which a suspicious pattern has appeared to support a very high detection solution.

AI based systems also claim ‘self-learning’ capabilities, that learn from various system and user actions. These self-learning capabilities are driven by advanced machine learning technology that enables the highest levels of compliance assurance, whilst driving down the volume of false-positives that have become a common burden for over-stretched anti-money laundering and sanctions teams.

The Explainability and Auditability offered by an AI solution aid not only in understanding the actions taken but also aid in adequately responding to audit and regulatory queries.

One recent survey by Encompass reports that in 2019, AML fines alone hit US$8.14bn, a near 100% increase on the previous year, when fines of $4.27bn were imposed. The need to review existing AML and wider compliance processes should not be ignored; otherwise it could be your organisation that is hitting the headlines for all the wrong reasons in 2020.

1 Another Fine Mess: A Global Research Report on Financial Institution Fines and Enforcement Actions, (Fenergo).